Utica Trust & Deposit Co. v. Decker

Taylor, J. The Genesee Motor Car Company, a name under which Edson L. O’Donoghue and Edward F. Wetzel were operating as copartners, was engaged in the business of purchasing automobiles and selling them at retail in the city of Utica, N. Y. The cars were housed and displayed in a building of a character and in a locality suitable therefor in that city. The company’s system of financing and of doing business was this: When shipments of automobiles arrived in Utica consigned to the Genesee Company it borrowed money from this plaintiff to pay for them. As consideration therefor said copartners concurrently executed and delivered to plaintiff their promissory notes and chattel mortgages covering the automobiles. Two automobiles thus held in stock by the Genesee Motor Company were bought and paid for in full by these defendants and delivered to them, respectively, on or about July 5, and May 22, 1924, no payment being made thereon by the Genesee Company to this plaintiff, and no release being obtained from plaintiff. A chattel mortgage covering these two automobiles was duly filed on April 10, 1924, pursuant (as plaintiff claims) to section 230 of the Lien Law. However, the provisions of section 45 of the Personal Property Law were not recognized nor observed. Concededly, these automobiles and over 200 others had been left by plaintiff in the possession of said Genesee Company for sale by it in the open market at retail. Concededly also the purchasers of these two automobiles had ño knowledge or actual notice of any lien or claim of this plaintiff. In these chattel mortgages the mortgagors covenanted not to sell or dispose of any of the automobiles without first paying to plaintiff the “ release value ” thereof specified in the mortgage; and the plaintiff covenanted to release cars upon such payment. It is apparent at the outset that we are considering a business scheme wherein chattels or merchandise were kept on hand for sale to purchasers in the open market and not otherwise. It was not a matter, for example, of household furniture or farming tools [139] or the like in private household or business use, partially paid for and under chattel mortgage security. A purchaser of one of these cars was in the same situation as is the average person who purchases a handsaw in a hardware store. While it has long been the rule that permission given to a chattel mortgagor by his mortgagee to keep in possession and sell the mortgaged chattels does not render the mortgage fraudulent or void as to creditors, provided the proceeds are applied in payment of the chattel mortgage as agreed, this rule is operative only because in such circumstances the mortgagor is deemed the mortgagee’s agent and the proceeds of sales are treated as reducing the amount due on the mortgage, even though the mortgagor should misapply them or refuse to pay them to the mortgagee. (Conkling v. Shelley, 28 N. Y. 360; Shilton v. Codington, 185 id. 80.) If this rule be applicable to innocent purchasers also, the chattel mortgage in question would not be void per se, whether filed or not; but the mortgagee, this plaintiff, unless protected by the filing, would be compelled to look to its agents, the mortgagors, for money due and could not recover from these defendants. However, we are assisted in the determination of this case by statutory provisions. By section 230 of the Lien Law, conveyances intended to operate as mortgages of goods and chattels are void as against creditors of the mortgagor and as against subsequent purchasers and mortgagees in good faith, unless filed in accordance with other sections of said act. In this section it is further stated that it shall not apply to agreements creating liens on merchandise where the conditions specified in section 45 of the Personal Property Law are complied with. This reference to said section 45 indicates that the lien agreements covered thereby are of the same general character as those mentioned in said section 230. Said section 45 states that liens upon merchandise, or the proceeds thereof, created by agreement for the purpose of securing the repayment of loans or advances made or to be made upon the security of said merchandise (liens similar to the one here in question) shall not be void or presumed to be fraudulent and void as against creditors or otherwise by reason of want of possession of the merchandise on the part of the lienor, provided that in each instance a certain sign is posted on the premises where the goods are kept containing the name and designation of any lienor, factor or consignee, and that a notice of the lien is filed with the officer designated in section 232 of the Lien Law, advising prospective purchasers or incumbrancers of any liens or claims against the chattels by others than the possessors, with the nature thereof and identifying the owners of such liens. The provisions for filing and indexing [140] differ from and are more elaborate than those specified in sections 230-233 of the Lien Law. It may be argued that as to an agreement creating a lien upon merchandise and within the purview of section 45 of the Personal Property Law, said section 230 of the Lien Law applies and prevents a filed chattel mortgage from being void as to subsequent purchasers in all cases wherein the conditions specified in section 45 of the Personal Property Law are not complied with. If so, the whole act (Laws of 1911, chap. 326) faffs to create a smoothly operating, comprehensive scheme. For such construction would permit lienors in cases clearly within the scope of said section 45 to protect themselves fully by simply filing their lien documents pursuant to said section 230. And this cannot be intended. We are of the opinion that said section 45 furnished to this plaintiff, and to all persons having claims or liens upon similar chattels similarly held and dealt in, a means of protection as against the whole world. And the statement in the section that conformity with its provisions will prevent any presumption of fraud or invalidity from attaching to lien documents specified — coupled with the statement in section 230 of the Lien Law that other documents intended to operate as chattel mortgages shall be void as to certain interested parties unless filed (the situation covered by section 45 being specifically excepted) — seems to indicate that mere filing in the instant case Was not a prescribed means of escaping from the presumption that this chattel mortgage was fraudulent and void as to these innocent purchasers. Sections 230-233 of the Lien Law and section 45 of the Personal Property Law became operative together by one enactment in chapter 326 of the Laws of 1911 (subsequent amendments thereof being immaterial here). A discussion of the state of the chattel mortgage law, common and statutory, controlling in times preceding this, is unnecessary. A consideration of this whole act of 1911 makes it apparent that these two sections mentioned were each a part of one legislative .plan: (1) To enable dealers in merchandise kept in stock, who could not pay cash in full, to finance the purchase of such merchandise and to keep possession of it for sale at retail; (2) to furnish a means of protection to persons having hens on such merchandise for money advanced to pay for it; (3) . to protect (a) creditors of such dealers and (b) incumbrancers and purchasers innocent of any defect in the dealer’s title, by requiring a notice to be posted conspicuously on the premises where the goods were located, thereby obviating the necessity of also searching the public records for further notice; and (4) as to chattels otherwise possessed and situated, not only to compel lienors to file [141] their documents of security, if they so desire, for protection, but to require creditors, incumbrancers and purchasers to search the public records for their own safety. The true scope of the word “ merchandise,” as used in said section 45, is a matter of importance. It has been stated that the word covers only those articles kept in stock and sold by people whom we have known for years as “ merchants; ” e. g., articles such as drygoods, hardware and the like. But the word has a broader meaning in these days. For example, it embraces carriages, wagons and other vehicles (Wynne v. City of Eastman, 105 Ga. 614); the phrase “ goods, wares, commodities kept for sale * * * where located ” is construed to include lumber (Mitchell v. Town of Plover, 53 Wis. 548); likewise it has been construed to include ties, poles and posts kept for sale (Torrey v. Shawano County, 79 Wis. 152). The Standard Dictionary defines “ merchandise ” as “ anything movable customarily bought and sold for profit; ” “ ‘ merchandise ’ * * * covers all kinds of personal property which is ordinarily bought and sold in the market.” (Blackwood v. Cutting Packing Co., 76 Cal. 212.) As business is now carried on, every reasonable purpose is served and the rights of all who are affected by documents operative as chattel mortgages are fairly assured by reading these sections together and construing them as indicated. Our view is sustained by the opinion in Boice v. Finance & G. Corp. (127 Va. 563), a case singularly like the instant case in its facts. (See, also, 18 Mich. Law Rev. 788.) If we are correct in our conclusion as to the proper construction of the said statutes-, then neither the mere filing of the chattel mortgage involved nor the fact that it expressly prohibited a sale of these automobiles unless their “ release value ” was first paid to the chattel mortgagee can aid respondent. Sections 106, 107 and 155 of the Personal Property Law (as added by Laws of 1911, chap. 571, known as the Sales of Goods Act) obviously have no application. Nor has section 230-a of the Lien Law (added by Laws of 1921, chap. 462, as amd. by Laws of 1922, chap. 137), which is merely an extension to mortgagees, for the benefit of creditors of mortgagors only, of the Bulk Sales Act (Pers. Prop. Law, § 44, as amd. by Laws of 1914, chap. 507) which applies to vendors. Plaintiff obtained judgment directing the sale of the two automobiles and the payment of plaintiff’s claim against them under its chattel mortgage. The defendant Decker alone appealed. The judgment against said defendant should be reversed on the law; the conclusions of law found should be disapproved and [142] reversed and certain new findings of fact and law made; and inasmuch as all the material facts are stipulated and plaintiff cannot recover on a new trial, the complaint should be dismissed, with costs. Hubbs, P. J., Clark and Crouch, JJ., concur; Davis, J., in an opinion dissents as to the reversal and as to the making new findings and votes for affirmance.